Research in International Business and Finance: Canh Phuc Nguyen, Thai-Ha Le, Thanh Dinh Su T

Research in International Business and Finance 51 (2020) 101118
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Research in International Business and Finance

journal homepage: www.elsevier.com/locate/ribaf
Economic policy uncertainty and credit growth: Evidence from a

T
global sample
Canh Phuc Nguyenc,d, Thai-Ha Lea,b,c,*, Thanh Dinh Suc
a
Fulbright School of Public Policy and Management, Fulbright University Viet Nam
b
IPAG Business School, France
c
University of Economics Ho Chi Minh City, Viet Nam
d
RMIT University, Viet Nam
ARTICLE INFO ABSTRACT
JEL classification: This study extends the research of Bordo, Duca, and Koch (2016) and Hu and Gong (2018) by
E50 examining the influences of economic policy uncertainty (EPU) at domestic and global levels on
E52 aggregate bank credit growth. The empirical analysis is conducted through both supply and
D81 demand side factors of bank credit growth in 22 economies over the period 2001–2015. This
G21
study employs different measures of EPU and applies panel-corrected standard errors (PCSE) and
feasible generalized least squares (FGLS), which are suitable for unbalanced panel data models.
Keywords:
Three principal findings are follows. First, higher level of EPU has negative impact on bank credit
Economic policy uncertainty
Credit supply and demand channels growth, which is significant for domestic EPU measures. Second, the positive change in EPU
Banking system appears to have favorable effects on bank credit growth. The effects in both cases are different for
Panel data analysis the credit demand and supply sides. The findings suggest the need for appropriate measures to
Global sample tackle bank credit risk-taking activities in uncertain conditions. Third, the impacts of EPU in
emerging economies are negative and somewhat stronger than in advanced economies.
1. Introduction
Studying the effects of economic policy uncertainty (EPU) on financial systems, particularly on the banking system activities, has
been an emerging area in the recent literature (Chi and Li, 2017; Hammoudeh and McAleer, 2015; Hu and Gong, 2018; Lee et al.,
2017).
The bank credit channel takes a crucial part in the interaction between the banking system and the economy, as one of the most
important transmission channels through which macroeconomic shocks propagate to bank credit activities (Ciccarelli et al., 2015;
Claus, 2011; Wulandari, 2012). On the other hand, the bank credit channel may contribute to a risk build-up due to the risk-taking
activities of bank managers through excessive credit supply (Konishi and Yasuda, 2004; Nguyen and Boateng, 2015). The riskier
credit activities might lead to higher potential risk for the whole financial system, causing the financial crisis in the worst case
(Crotty, 2009; Laeven and Levine, 2009). Therefore, understanding the determinants of credit growth to have insight into the me-
chanisms of risk-taking activities in bank credit channels is important for both scholars, policy makers and practitioners (Laeven and
Levine, 2009).
In the existing literature, the increase in EPU is mostly found to have a negative shock on investment (Nick Bloom et al., 2007;
Drobetz et al., 2018; Kang et al., 2014), employment (Caggiano et al., 2017; Fontaine et al., 2018), and output (Nicholas Bloom,
⁎
Corresponding author at: Fulbright School of Public Policy and Management, Fulbright University, Viet Nam.
E-mail addresses: canhnguyen@ueh.edu.vn (C.P. Nguyen), ha.le@fulbright.edu.vn (T.-H. Le), dinhthanh@ueh.edu.vn (T.D. Su).
https://doi.org/10.1016/j.ribaf.2019.101118
Received 3 March 2019; Received in revised form 8 August 2019; Accepted 15 October 2019
Available online 29 October 2019
0275-5319/ © 2019 Elsevier B.V. All rights reserved.
C.P. Nguyen, et al. Research in International Business and Finance 51 (2020) 101118
2009; Colombo, 2013). Meanwhile, the dynamics of EPU would revoke the changes in bank financial conditions and thus induce bank
managers to alter their credit activities (Bordo et al., 2016; Chi and Li, 2017; Gissler et al., 2016; Hu and Gong, 2018; Lee et al.,
2017). Bordo et al. (2016) is one of the pioneers in examining the impact of EPU on aggregate bank credit growth with the focus on
credit supply channel. They found that policy uncertainty has a significant and unfavorable effect on bank credit growth. This impact
is heteroskedastic across the investigated banks. These results might arise from the demand side of credit channels, where the
increase in EPU has negative impact on investment, output and employment (Nicholas Bloom, 2009; Colombo, 2013), leading to
reduced demand for credit. As a result, credit growth decreases as in Bordo et al. (2016). However, the supply side of credit channels
from banking activities may happen in the opposite direction since the downturn of an economy would limit the potential projects for
bank credit supply. Consequently, bank managers, who are often under the pressure of profitability targets, may be willing to take
more risk in their credit activities. This gives rise to the need to examine the influences of EPU on credit growth in a comprehensive
framework that considers both credit demand and credit supply channels.
Our contributions to the literature are threefold. First, this study extends the existing literature by examining the influences of
EPU on credit growth through both credit demand and credit supply channels (or balance sheet channel and bank lending channel
(Ben S Bernanke and Gertler, 1995) by conducting a panel data analysis at the banking system level. This is because EPU is a
macroeconomic factor that might affect the whole banking system (Bordo et al., 2016; Chi and Li, 2017; Lee et al., 2017). Moreover,
the impact of EPU on bank credit might not only be dependent on bank characteristics (Bordo et al., 2016) through the credit supply
channel. Instead, it should also be investigated or transmitted through the credit demand channel (Kapounek et al., 2017). In fact, the
negative influences of EPU on investment and output have been documented in the literature (Nicholas Bloom, 2009; Colombo,
2013), but the link from the fall in investment or output to the credit growth is not explicitly considered. The financial safety of the
banking system (as a whole) has always been a critical goal for the policymakers (Gulati et al., 2018; Haldane and May, 2011).
Furthermore, the important roles of domestic EPU and external EPU in explaining the dynamics of domestic economic factors have
been acknowledged in the literature (e.g., see Das and Kumar (2018)). That finding motivates this study to consider EPU at both
domestic and global terms in our empirical investigation. To the best of our knowledge, our study is probably the first attempt in the
literature to examine this subject matter for a global sample. Our study sample consists of 22 banking systems from 22 economies
over the period from 2001 to 2015, subject to the data availability.
Second, this study employs a number of measures for EPU in order to capture the effects on credit growth through both credit
demand and credit supply sides, including level, volatility, and changes in level and volatility of EPU. We also consider two different
types of uncertainty, including domestic EPU1 and global EPU2 . In particular, domestic EPU is the EPU of each country, while global
EPU is the weighted average of EPUs of 22 countries in the sample.
Third, this study applies advanced econometric techniques that are suitable for unbalanced panel data models, which are the case
of our study, namely, panel-corrected standard errors (PCSE), and feasible generalized least squares (FGLS) are employed. These
estimation methods also effectively deal with the potential heteroskedasticity problem in this study since several papers have
documented the heteroskedastic effects of EPU on stock markets in different economic conditions (e.g., see Dakhlaoui and Aloui
(2016); Xiong et al. (2018)).
The results from PCSE as the main estimation technique are follows. First, the higher levels of EPU in terms of level and volatility,
especially domestic EPU, have significant and negative effects on the aggregate bank credit growth. On the credit supply side, this
unfavorable impact of EPU is more prominent in highly liquid and/or profitable banking systems, while this negative effect is weaker
in large and/or conservative (high equity) capitalization and/or riskier banking system. On the credit demand side, the negative
effects of domestic EPU are less significant in countries with higher economic growth. Interestingly, the results show stronger ne-
gative influence of global EPU in countries with high economic growth rates.
Second, increases in percentage changes of domestic and global EPUs have positive impacts on aggregate bank credit growth. On
the credit supply side, the favorable effect of increases in domestic EPU is weaker in well capitalized and/or highly liquid and/or
riskier banking systems. On the contrary, the favorable impact of increases in global EPU is stronger in large and/or well capitalized
and/or highly profitable banking systems but weaker in highly liquid and/or riskier ones. On the credit demand side, the effects of
higher percentage increases in both domestic and global EPUs are less prominent in countries with strong economic growth rates.
For comparison and completeness, this study performs the analysis for two subsamples of countries, namely 12 advanced
economies vs ten emerging economies. The results show that the impacts of EPU are negative and somewhat stronger in emerging
economies. In particular, the effects of increased EPU in percentage changes appear to be more significant than those in levels.
The rest of the study is organized as follows. Section 2 presents an overview on credit channels. Section 3 presents methodology
and data, including describing different measures of EPU employed in the study. The empirical results are reported and discussed in
Section 4. Section 5 concludes this study.
1
The domestic EPU of each country is a measure for policy-related economic uncertainty. Baker, Bloom, and Davis (2016) construct this index
from three types of underlying components. The first component quantifies newspaper coverage of policy-related economic uncertainty. The second
component reflects the number of federal tax code provisions set to expire in future years. The third component uses disagreement among economic
forecasters as a proxy for uncertainty (please refer to https://www.policyuncertainty.com/methodology.html).
2
The global EPU is a GDP-weighted average of national EPU indices for 20 countries: Australia, Brazil, Canada, Chile, China, France, Germany,
Greece, India, Ireland, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Sweden, the United Kingdom, and the United States (see
https://www.policyuncertainty.com/global_monthly.html).
2
2. Literature review on the credit channels
The transmissions of monetary policy shocks to the economy have received a great deal of attention in the literature of mac-
roeconomic economics (Cecchetti, 1999; Koop et al., 2009). The development of financial system, especially banking systems, over
the past decades have regarded the credit channels as one of the most important channels in monetary policy transmission (Aysun
et al., 2018; Wulandari, 2012; Yagihashi, 2018). Through credit channels, the monetary policy shocks or macroeconomic shocks
would propagate to bank credit activities from both credit demand and supply sides (Ben S Bernanke and Gertler, 1995; Ciccarelli
et al., 2015; Claus, 2011; Wulandari, 2012).
On the one hand, commercial banks would generally base on their own financial conditions such as market power (Kishan and
Opiela, 2000), capital (Flannery, 1989; Gennotte and Pyle, 1991; Hyun and Rhee, 2011; Kishan and Opiela, 2000), liquidity (Mishra
and Burns, 2017), risk (Altunbas et al., 2010; Chi and Li, 2017), or profitability (Altunbas et al., 2000) to decide how to appropriately
respond to external shocks. The external shocks impact credit activities by affecting credit growth through the bank lending channel.
On the other hand, the external shocks could influence on the credit demand of economic agencies, which is also known as balance
sheet channel (Aysun et al., 2018; Ben S Bernanke and Gertler, 1995; Ciccarelli et al., 2015; Wulandari, 2012). The credit growth is,
at the end, the equilibrium of evolutions in credit demand and credit supply. Ben S Bernanke and Gertler (1995) are one of the
pioneer study to explain credit channels and classifies the channels into balance sheet channel and bank lending channel. Kishan and
Opiela (2000) unveiled the existence of credit channels through bank lending channel in the U.S. over the 1980–1995 period. They
found that the monetary policy shocks impact severely on small and well-capitalized commercial banks. Wulandari (2012) indicated
that credit growth through bank lending channel can effectively affect economic growth. Meanwhile, Ashcraft (2006) concluded that
the effect through bank lending channel is not as strong as expectation.
Yagihashi (2018) emphasized that the improper monetary policy undertaken might lead to higher economic instability during the
crisis period. Therefore, it is important for policymakers to understand the effects of macroeconomic instability on the performance of
financial system, especially the banking system. Many other studies have documented the existence and the dynamics of credit
channels (Baskaya et al., 2017; Bordo et al., 2016; Ciccarelli et al., 2015), especially bank lending channels (Chouchène et al., 2017;
D’Avino, 2018; Halvorsen and Jacobsen, 2016; Heryán and Tzeremes, 2017; Ippolito et al., 2018; Mahathanaseth and Tauer, 2018;
Matousek and Solomon, 2018; Mishra and Burns, 2017; Salachas et al., 2017; Sanfilippo-Azofra et al., 2018), with mixed results
found, attributable to complex behaviors of commercial banks.
A great deal of interests from both scholars and practice have recently been paid to analyzing the nexus between economic policy
uncertainty and its macroeconomic influences, thanks to the influential works of Nicholas Bloom (2009) and the data availability for
a new index of economic policy uncertainty (Baker et al., 2016). A rising number of studies has focused on the influences of EPU on
economic activities (see, for instance, Bernal et al. (2016), Junttila and Vataja (2018); Demir and Gozgor (2018)), financial markets
with a focus on stock markets (e.g., see Li et al. (2015), Christou et al. (2017), Phan et al. (2018), Yu et al. (2018)), while other studies
pay attention to some specific topics such as firm investment (Drobetz et al., 2018; Kang et al., 2014; Wang et al., 2014), mergers and
acquisitions (Bonaime et al., 2018) and others (Asamoah et al., 2016; Beckmann and Czudaj, 2017; Kido, 2016; Roubaud and Arouri,
2018).
Meanwhile, a handful of studies examines the relationships between EPU and the banking system (Chi and Li, 2017; Hammoudeh
and McAleer, 2015; Hu and Gong, 2018; Lee et al., 2017). For instance, Wisniewski and Lambe (2015) showed that the price of a
credit default swap, referred to as its “spread”, is significantly responsive to shocks in EPU. Gissler et al. (2016) opined that the
decline in bank lending was more severe if banks perceived higher regulatory uncertainty. Aastveit et al. (2017) documented that
high uncertainty would reduce the effects of the U.S. monetary policy shocks on economic activities, including the banking system.
Other studies such as Lee et al. (2017); Bordo et al. (2016); Hu and Gong (2018) have examined the effects of EPU on the credit
activities of banking system with interesting findings. Lee et al. (2017) added that the EPU has changed the lending behaviours and
risk-taking activities of financial institutions, but bank-specific characteristics still play a key part in the leverage decision of financial
institutions. Chi and Li (2017) unveiled the positive relationships between EPU and non-performing loan ratios, loan concentrations
and the normal loan migration rate in Chinese commercial banks. Hu and Gong (2018) found that EPU has reduced bank credit
growth in 19 major economies. Moreover, this effect is more dominant in larger and/or riskier banks, while less prominent in more
liquid/diversified banks. Notably, Bordo et al. (2016) documented that policy uncertainty presents an unfavorable shock to bank
credit growth.
Most of the studies on the impacts of EPU are single-country case studies (for instance, Arouri et al. (2016), Bordo et al. (2016);
Caggiano et al. (2017), and Kang et al. (2014) for the US; G. Zhang et al. (2015) for China). This group of studies mostly employs
time-series techniques in their empirical analyses. Meanwhile, only a handful of studies is conducted to examine the influences of
EPU from a large economy on a group of other countries (e.g., Colombo (2013); Dakhlaoui and Aloui (2016); Demir and Ersan
(2017)), or the spillovers of EPU’s effects in a group of countries (Bernal et al. (2016) for the Eurozone; Demir and Gozgor (2018) for
15 countries). Much less attention is devoted to assessing the impacts of EPU at domestic and global level, on a country’s economic
activities for a global sample. Furthermore, in most of the existing studies, little effort is devoted to conducting robustness check and
comparison analysis since only a single measure or a very limited number of measures for EPU is employed, and most of the time,
only one single estimation technique is used. This study attempts to fill in all these gaps by applying advanced panel data techniques
to a global sample in addition to performing various robustness checks using a range of EPU measures and subsamples of countries.
From the theoretical perspectives, the effects of an external shock to aggregate bank credit growth should be investigated through
both credit demand and supply sides to truly determine the transmission mechanism (Ben S Bernanke and Gertler, 1995; Firth et al.,
2009). In particular, the shocks in EPU may be transmitted to credit growth of banking system through credit supply channel
3
depending on conditions (or characteristics) of each bank (Bordo et al., 2016) or through credit demand channel as the reduced
demand for bank credit from the market (Kapounek et al., 2017), or from both channels (Ben S Bernanke and Gertler, 1995).
However, while the impact of EPU on credit growth through credit supply channels is documented in several studies such as Bordo
et al. (2016), the influence of EPU on credit growth through the credit demand channel is scarce in the existing literature.
In fact, an increase in EPU is expected to reduce the investment (Nick Bloom et al., 2007; Drobetz et al., 2018; Kang et al., 2014),
employment (Caggiano et al., 2017; Fontaine et al., 2018), and output (Nicholas Bloom, 2009; Colombo, 2013). The fall in invest-
ment would cause lower credit demand, which affects credit growth through the demand side of credit. On the other hand, the fall in
output could lead to lower economic activities and the need for financial services (Junttila and Vataja, 2018), which reduces the
income diversification capacity of commercial banks. As a result, the expected profitability of commercial banks would decline
significantly. Meanwhile, bank managers might have profit motives to engage in risk-taking behaviors with excessive credit supply to
get higher potential returns (García-Kuhnert et al., 2015; Pathan, 2009; Uhde, 2016). That is, bank managers may be willing to take
on more risk by providing more credit in order to maintain the profitability of their banks, leading to credit growth. Meanwhile, the
credit risk-taking behaviors of bank managers have dynamic relationships with bank-characteristics (Altunbaş et al., 2002; Altunbas
et al., 2010; Halvorsen and Jacobsen, 2016; Kishan and Opiela, 2000; Matousek and Solomon, 2018), thus empirical studies on the
influences of EPU on aggregate bank credit growth should take into account these factors from both the demand and supply sides of
credit. Furthermore, the banking system not only has a critical role in the economy but also possesses a major source of systemic risk
to the financial system through its significance as a source of credit and liquidity in the economy or its interconnectedness with the
regional/global banking system (Gulati et al., 2018; Haldane and May, 2011). In this regard, our study extends the work by Bordo
et al. (2016) to investigate the impacts of EPU on credit growth at the aggregate banking system level using a comprehensive
framework that considers both the demand and supply sides of credit.
3. Methodology and data
The baseline model of this study is built based on the theoretical framework of the two main credit channels including balance
sheet channel (demand side) and bank lending channel (supply side) (Bernanke, 1993; Bernanke and Gertler, 1995; Kishan and
Opiela, 2000) and the previous empirical models by (Bordo et al. (2016) and Hu and Gong (2018)). However, Ben S. Bernanke
(1993); Ben S Bernanke and Gertler (1995); and Kishan and Opiela (2000) do not consider EPU in their credit channel analysis while
Bordo et al. (2016) and Hu and Gong (2018) conduct an empirical study for the impact of EPU on credit growth but only looking at
the supply side.
Our baseline model is constructed as follows:
5
CreditGit = 0 + j Sj, it 1 + 1 GDPgit + it
j=1 (1)
in which: i, t denotes country i in year t. CreditGit is the growth rate of private credit by deposit money banks; Sj is a vector of banking
system characteristics including the size (Size), the capital (Cap), the liquidity (Liq), the profitability (Profit), and the risk (Risk);
GDPgit is real GDP growth rate; , β, are the estimated coefficients of interest; ε is the error term. The banking system characteristics
are used to examine the supply side of credit markets, while the real GDP growth rate is used to proxy for the demand side of credit
markets (see Kishan and Opiela (2000); Altunbaş et al. (2002)).
This study extends the analytical framework as in the study of Bordo et al. (2016) in four regards. First, the model in Bordo et al.
(2016) explicitly considers the bank size, bank capital, bank liquidity, and bank securitization activities. Besides these factors, this
study also considers the bank profitability and bank system risk (the probability of default of a country’s commercial banking system).
Second, the analytical framework in Bordo et al. (2016) seems to ignore the credit demand side in examining the impact of EPU on
credit growth. Meanwhile, this study explicitly considers the role of demand side in the credit growth of banks by including real GDP
growth rate to proxy for the growth of credit demand from demand side. By so doing, the analytical framework of our study is
expected to be more comprehensive as compared to that of Bordo et al. (2016). Third, Bordo et al. (2016) only employs a single proxy
for EPU while in this study, we use various indicators and measures for EPU for comparison and completeness. Fourth, Bordo et al.
(2016) only study the US case while we investigate a global sample in addition to two subsamples of advanced and emerging
economies for comparison and completeness.
Lee et al. (2017) found that EPU may have effect on the leverage decisions of financial institutions through their changes on
lending behaviours and risk-taking activities. However, they showed that bank-specific characteristics are still the most influential
drivers for the leverage decision of financial institutions. Chi and Li (2017) brought empirical evidence on the significant and positive
relationships among EPU and non-performing loan ratios, loan concentrations and the normal loan migration rate in Chinese
commercial banks during the 2000–2014 period. Furthermore, their study showed that EPU positively influences banks’ credit risks
while negatively affects the loan size. A recent study by Hu and Gong (2018) conducted a bank-level study for 19 major economies.
They emphasized that EPU has significantly negative influence on the growth of bank credit. This unfavorable effect is stronger for
larger and/or riskier banks, while weaker for more liquid/diversified banks. However, none of these studies consider the effects of
EPU on credit growth through both demand and supply sides of credit channels.
In our model estimation, one period (one year) lagged variables of the banking system characteristics are employed to avoid the
endogeneity problem (Hu and Gong, 2018).
Next, domestic and global EPU are added into Eq. [1], respectively, to examine the impacts of EPU on credit growth, expressed in
4
Table 1
Data sources, variable descriptions and calculations.
Variable Calculations Source Obs. Mean Std. Min Max
Dev.
CreditG Annual percentage change in Private credit by deposit money banks =ΔLog[Private GFDD, WDI 307 0.088 0.139 −0.389 0.466
credit by deposit money banks to GDP (%)*GDP]
Size Banking system size = Deposit money banks' assets to GDP (%) GFDD 329 104.9 46.2 21.0 257.4
Cap Banking system capital = Bank capital to total assets (%) GFDD 324 7.522 2.815 3.000 14.880
Liq Banking system liquidity = Liquid assets to deposits and short-term funding (%) GFDD 330 33.077 17.984 5.690 124.810
Profit Banking system profitability = Bank return on assets (%, after tax) GFDD 330 0.745 1.054 −8.520 3.070
Bank return on assets (%, after tax)
Risk Banking system risk = Bank Z-score (It captures the probability of default of a GFDD 330 13.059 6.728 0.020 37.140
country's commercial banking system)
GDPg Real GDP growth (annual %) WDI 330 3.009 3.675 −9.132 25.557
EPU Economic Policy Uncertainty value at December of each country 324 120.17 61.07 15.30 358.99
EPUm Yearly mean of Economic Policy Uncertainty of each country 324 114.29 44.31 27.00 305.43
EPUvo Yearly standard deviation of Economic Policy Uncertainty of each country 324 35.25 19.45 6.05 123.33
EPUc Percentage change of Economic Policy Uncertainty value at December of each 302 0.013 0.467 −1.417 1.462
country
EPUmc Percentage change of Yearly mean of Economic Policy Uncertainty of each country 302 0.012 0.287 −0.832 1.047
EPUvoc Percentage change of Yearly standard deviation of Economic Policy Uncertainty of 302 −0.004 0.570 −1.555 1.365
each country
GEPU1 Global Economic Policy Uncertainty (current price) value at December 330 108.23 35.90 54.49 183.09
GEPU2 Global Economic Policy Uncertainty (ppp price) value at December 330 109.28 37.66 55.65 195.96
GEPU1m Yearly mean of Global Economic Policy Uncertainty (current price) 330 106.28 26.62 62.02 155.05
GEPU2m Yearly mean of Global Economic Policy Uncertainty (ppp price) 330 106.65 27.22 63.32 161.35
GEPU1vo Yearly standard deviation of Global Economic Policy Uncertainty (current price) 330 21.593 11.094 6.786 43.844
GEPU2vo Yearly standard deviation of Global Economic Policy Uncertainty (ppp price) 330 21.909 11.459 7.765 47.420
GEPU1c Percentage change of Global Economic Policy Uncertainty (current price) value at 308 0.000 0.309 −0.470 0.530
December
GEPU2c Percentage change of Global Economic Policy Uncertainty (ppp price) value at 308 0.004 0.325 −0.533 0.510
December
GEPU1mc Percentage change of Yearly mean of Global Economic Policy Uncertainty (current 308 0.005 0.216 −0.311 0.560
price)
GEPU2mc Percentage change of Yearly mean of Global Economic Policy Uncertainty (ppp 308 0.009 0.225 −0.292 0.591
price)
GEPU1voc Percentage change of Yearly standard deviation of Global Economic Policy 308 −0.018 0.762 −1.477 1.130
Uncertainty (current price)
GEPU2voc Percentage change of Yearly standard deviation of Global Economic Policy 308 −0.012 0.718 −1.188 1.252
Uncertainty (ppp price)
Note: GFDD is Global Financial Development Database. WDI is World Development Indicators – World Bank (2018). All the data on economic policy
uncertainty are collected from www.policyuncertainty.com by Baker et al (2018).
Eq. [2] as follows:

5
CreditGit = 0 + j Sj, it 1 + 1 GDPgit + 1EPUit + it
j=1 (2)
In which: EPU is proxied by different measures of economic policy uncertainty at country and global levels. The interaction terms
between EPU and banking system characteristics as well as between EPU and real GDP growth are added into Eq. [2] to examine
whether the transmission channels of EPU to credit growth are through credit demand or credit supply side.
5 5
CreditGit = 0 + j Sj, it 1 + 1 GDPgit + 1EPUit + k (EPUit * Sj, it 1) + 6 EPUit * GDPgit + it
j=1 k=1 (3)
Data, definitions, and calculations of the variables are presented in Table 1.

Our sample consists of 22 economies (see Table A1 in the Appendix for the detailed country list) over the 2001–2015 period,
subject due to data availability. The correlation coefficients between credit growth and the independent variables are reported in
Table 2.
Table 2 shows that credit growth has positive correlations with the capital, liquidity, profitability of banking systems and eco-
nomic growth. Meanwhile, it has negative correlations with the size and the risk of banking systems. In terms of EPU, the credit
growth is positively correlated with proxies for percentage changes of domestic and global EPUs but negatively correlated with
changes in level of domestic and global EPUs. This finding implies that the influences of the level and percentage changes of EPU on
credit growth are heteroskedastic.
For the empirical analysis, we first conducted cross-sectional dependence test of Pesaran (2004) on the variables. The results
5
Table 2
Correlation matrix.
Correlation CreditG CreditG CreditG CreditG
Size −0.284 EPU −0.194 GEPU1 −0.167 GEPU1c 0.205

p-value 0.000 0.001 0.003 0.000
Cap 0.124 EPUm −0.294 GEPU2 −0.142 GEPU2c 0.226
p-value 0.031 0.000 0.013 0.000
Liq 0.006 EPUvo 0.014 GEPU1m −0.312 GEPU1mc 0.042
p-value 0.920 0.812 0.000 0.462
Profit 0.382 EPUc 0.143 GEPU2m −0.310 GEPU2mc 0.060
p-value 0.000 0.013 0.000 0.298
Risk −0.014 EPUmc 0.018 GEPU1vo −0.026 GEPU1voc 0.096
p-value 0.814 0.760 0.653 0.093
GDPg 0.491 EPUvoc 0.085 GEPU2vo −0.079 GEPU2voc 0.088
0.000 0.141 0.169 0.122
indicate that most of the variables (apart from the bank risk) are cross-sectionally dependent (see Table 3). The Im-Persaran-Shin unit
root test (Im et al., 2003) and Fisher based on Phillips-Perron type (the Inverse chi-squared P) unit root test (Choi, 2001) are then
employed to examine the stationarity of the variables. Most of the variables are shown to be stationary. As such, this study employed
Panel Corrected Standard Errors (PCSE) as the main estimation method due to its suitability for small panel data with the existence of
cross-sectional dependence (Bailey and Katz, 2011; Jönsson, 2005; Marques and Fuinhas, 2012). Moreover, PCSE is found as an
accurate estimation of variability in the presence of panel error structures (Beck and Katz, 1995). For robustness checks, we also
estimated our models using Feasible Generalized Least Squares (FGLS) (Liao and Cao, 2013; Reed and Ye, 2011; C. Zhang and Nian,
2013). Although both PCSE and FGLS are suitable for unbalanced panels as in the case of this study, FGLS is chosen as the main
estimation technique since PCSE produces smaller standard errors as compared to FGLS. In addition to using different econometric
techniques for estimation, we also use two measures of global EPU to check for the robustness of our findings.
4. Results and discussion
The main empirical results are reported in Tables 4–7, while the results from FGLS estimations are shown in Tables A2 to A5 in the
Appendix. We find that the results obtained from FGSL are consistent with those attained from PCSE, our main estimation method.
Table 3
Cross-sectional dependence test and Stationarity tests.
Variable CD-test p-value Corr Abs Im–Pesaran–Shin test for level Fisher unit root test for level
(corr)
Size 30.529 0.000 0.52 0.68 4.9035 24.0736

(1.0000) (0.9937)
Cap 3.548 0.000 0.06 0.40 −0.6395 68.8973
(0.2612) (0.0096)
Liq −0.593 0.553 −0.01 0.31 −2.5529 76.9457
(0.0053) (0.0015)
Profit 12.12 0.000 0.21 0.29 −4.3479 126.9489
(0.0000) (0.0000)
Risk 0.621 0.534 0.01 0.40 −2.1082 85.9288
(0.0175) (0.0002)
GDPg 28.388 0.000 0.48 0.49 −4.9659 145.9850
(0.0000) (0.0000)
EPU 22.845 0.000 0.40 0.48 −3.2589 75.8168
(0.0006) (0.0020)
EPUm 25.435 0.000 0.44 0.51 −0.7544 36.9372
(0.2253) (0.7659)
EPUvo 20.416 0.000 0.35 0.39 −5.8870 165.7267
(0.0000) (0.0000)
EPUc 15.988 0.000 0.29 0.34 −8.6939 394.8297
(0.0000) (0.0000)
EPUmc 25.258 0.000 0.45 0.46 −7.5823 270.4501
(0.0000) (0.0000)
EPUvoc 20.97 0.000 0.38 0.40 −9.5985 573.7512
(0.0000) (0.0000)
Notes: For CD test: Ho: cross-section independence, CD ∼ N(0,1), p-values close to zero indicate data are correlated across panel groups. For Im-
Pesaran-Shin test (Z-t-tilde-bar): Ho: All panels contain unit roots, Ha: Some panels are stationary. For Fisher-type unit-root test (based on Phillips-
Perron tests - Inverse chi-squared): Ho: All panels contain unit roots, Ha: At least one panel is stationary. *, **, *** denote statistical significance at
10%, 5%, and 1% levels, respectively.
6
Table 4
Domestic Economic Policy Uncertainty and Credit channel: PCSE estimations.
Dep.var: CreditG (1) (2) (3) (4) (5) (6) (7) (8)
Explanatory var: Baseline model EPU EPUm EPUvo EPUc EPUmc EPUvoc
Size(-1) −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001***

[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.003 −0.004 −0.003 −0.003 −0.004 −0.003 −0.003 −0.003
[0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003]
Liq(-1) 0.00007 0.0006** 0.0007** 0.0008*** 0.0006** 0.0007** 0.0007** 0.0007**
[0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003]
Profit(-1) 0.046*** 0.031*** 0.030*** 0.027*** 0.032*** 0.029*** 0.030*** 0.030***
[0.010] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009]
Risk(-1) −0.001 −0.002* −0.002** −0.002* −0.002* −0.002** −0.002** −0.002**
[0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001]
GDPg 0.016*** 0.016*** 0.016*** 0.016*** 0.016*** 0.017*** 0.016***
[0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002]
EPU −0.0002* −0.0004*** 0.0004 0.028** 0.027 0.018*
[0.0001] [0.0001] [0.0003] [0.013] [0.024] [0.011]
Constant 0.162*** 0.111*** 0.122*** 0.136*** 0.102*** 0.105*** 0.104*** 0.104***
[0.040] [0.039] [0.039] [0.041] [0.038] [0.039] [0.039] [0.038]
N 302 302 299 299 299 296 296 296
R-squared 0.213 0.348 0.355 0.362 0.351 0.362 0.357 0.360
Countries 22 22 22 22 22 22 22 22
Note: Standard errors are in []. *, **, *** denote statistical significance at 10%, 5%, and 1% levels, respectively.
Table 5
Domestic Economic Policy Uncertainty and Credit channel: Percentage changes: PCSE estimations.
Dep.var: CreditG (9) (10) (11) (12) (13) (14)
Explanatory var: EPU EPUm EPUvo EPUc EPUmc EPUvoc
Size(-1) −0.001*** −0.002*** −0.002*** −0.001*** −0.001*** −0.001***

[0.0004] [0.0004] [0.0003] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.014** −0.020*** −0.014*** −0.003 −0.003 −0.004
[0.006] [0.007] [0.005] [0.003] [0.003] [0.003]
Liq(-1) 0.002** 0.003*** 0.001 0.0006** 0.0006** 0.0006**
[0.001] [0.001] [0.001] [0.0003] [0.0003] [0.0003]
Profit(-1) 0.027 0.037 0.059*** 0.028*** 0.029*** 0.030***
[0.025] [0.030] [0.022] [0.009] [0.009] [0.009]
Risk(-1) −0.002 −0.007*** −0.003** −0.002** −0.002** −0.002**
[0.002] [0.002] [0.001] [0.001] [0.001] [0.001]
GDPg 0.008* 0.006 0.002 0.016*** 0.017*** 0.017***
[0.004] [0.006] [0.004] [0.002] [0.002] [0.002]
EPU −0.0013** −0.003*** −0.005*** 0.089 0.109 −0.026
[0.0005] [0.001] [0.002] [0.072] [0.130] [0.053]
EPU*[Size(-1)] 4.5e-6** 0.00001*** 0.00002*** −0.0001 0.00006 0.0003
[2.0e-6] [2.6e-06] [6.1e-06] [0.0004] [0.0006] [0.0003]
EPU*[Cap(-1)] 0.0001** 0.0002*** 0.0003** −0.003 −0.005 0.004
[0.00004] [0.00005] [0.0001] [0.005] [0.009] [0.004]
EPU*[Liq(-1)] −6.8e-06 −0.00001** −9.1e-06 −0.0002 −0.001 −0.0003
[4.7e-06] [6.5e-06] [0.00002] [0.0007] [0.001] [0.0004]
EPU*[Profit(-1)] −3.9e-06 −0.0001 −0.001 0.018 0.029 −0.005
[0.0001] [0.0002] [0.0005] [0.019] [0.035] [0.017]
EPU*[Risk(-1)] 4.6e-06 0.00005*** 0.00004 −0.003 −0.002 −0.001
[0.00001] [0.00002] [0.00004] [0.002] [0.002] [0.001]
EPU*GDPg 0.00007* 0.00008* 0.0004*** −0.00009 −0.005 0.002
[0.00004] [0.00005] [0.0001] [0.004] [0.008] [0.004]
Constant 0.272*** 0.426*** 0.308*** 0.100** 0.099** 0.110***
[0.078] [0.097] [0.074] [0.039] [0.040] [0.039]
N 299 299 299 296 296 296
R-squared 0.384 0.410 0.412 0.368 0.361 0.363
Countries 22 22 22 22 22 22
4.1. Domestic EPU and credit growth
Table 4 reports the impacts of domestic EPU on credit growth. On the credit supply side, the liquidity and profitability appear to
have significantly positive effects on credit growth. This means that the banking systems with higher liquidity and/or profitability
7
would likely increase the supply of credit. This finding is consistent with theory and the empirical evidence from the literature that
higher liquidity or profitability creates more capability for banking systems in supplying credit to private sectors (Altunbaş et al.,
2002; Altunbas et al., 2009; Mishra and Burns, 2017).
Meanwhile, the size, capital, and risk of the banking system are shown to have negative effects on credit growth. This implies that
the larger and/or better capitalized and/or riskier banking systems will likely reduce their credit supply. This interesting finding is
opposite with the finding from other studies that the smaller and/or less capitalized and/or less risk banks would reduce the supply of
credit (see, for instance, Kishan and Opiela (2000)). However, this could be explained by the fact that our sample includes mostly
advanced and big emerging economies that are at intermediate or advanced stage of financial development. Therefore, in the larger
and/or well-capitalized banking systems, the focus is on the diversification of banks' asset portfolios rather than only on credit
activities (DeYoung and Torna, 2013; Stiroh, 2004). The negative impact of bank default risk on credit growth is the evidence against
the risk-taking literature that a banking system with perceived high risk will more likely engage in riskier lending activities (Jiménez
et al., 2014; Konishi and Yasuda, 2004). However, the higher probability of default in the banking system would stimulate stronger
regulations from policymakers (Hyun and Rhee, 2011; Peek and Rosengren, 1995) thus banks are constrained in increasing their
credit supply.
On the credit demand side, the real GDP growth appears to have significant and positive effects on credit growth. This result is in
line with the theory that economies with strong real economic growth are likely to see an increase in the demand for credit, regardless
of the stage of financial development (Ciccarelli et al., 2015; Kapounek et al., 2017).
Our main variables of interest, the proxies measuring level and percentage changes in the domestic EPU (in terms of year-end
value, yearly mean, and yearly volatility) are shown to have opposite effects on credit growth. Specifically, the higher level of year-
end and yearly mean values of the domestic EPU have significantly negative impacts on credit growth. On the other hand, the
changes in year-end value and volatility of the domestic EPU have significant and positive effects on credit growth. These results
suggest that increased level of economic uncertainty reduces aggregate bank credit growth, while the positive percentage changes in
EPU increase credit growth. Our finding is consistent with the result of Bordo et al. (2016) regarding the effects of EPU’s levels on
credit growth.
However, our results bring new evidence to the literature on the effects of both the level and percentage changes of EPU on credit
growth. This contributes to the current debate that the macroeconomic effects of EPU on financial markets are heteroskedastic across
different specifications of economic instability (e.g., Dakhlaoui and Aloui (2016); Xiong et al. (2018)). Furthermore, while most of the
studies such as Hu and Gong (2018) use the log of EPU to proxy for EPU, our study points out the importance of considering both
fluctuations of EPU in the level and percentage changes of EPU for an empirical analysis in this research theme as they may suggest
different impacts.
As the main objective of this study, the estimation results of Eq. [3] for domestic EPU are reported in Table 5. On the credit supply
side, the coefficient estimates of the interaction terms between different measures of domestic EPU in level with the size, the capital,
and the risk of the banking system are positive, while those of the interaction terms with the liquidity and the profitability are
negative. The unfavorable effects of domestic EPU on credit growth through credit supply channel are thus stronger in highly liquid
and/or profitable banking systems. This implies the higher risk-taking activities undertaken in highly liquid and/or profitable
banking system so that the growth of credit is significantly reduced in the context of increased economic uncertainty (Nguyen and
Boateng, 2015).
Meanwhile, we find that the negative effects of domestic EPU on credit growth through the credit supply channel are weaker in
large, well-capitalized and/or riskier banking systems. This result suggests that the large and/or well-capitalized banking systems
would involve in “higher risk” credit activities, inducing higher credit growth in the case of uncertainty since they have stronger
market power (Altunbas et al., 2010; Fernholz and Koch, 2016) and are less regulated due to having better capital (Gennotte and
Pyle, 1991; Hyun and Rhee, 2011; Kishan and Opiela, 2000). However, the riskier banking system is less negatively impacted by the
high EPU, which means that the risker banks will reduce their credit supply less than others. This finding can be used to explain for
the collapse of the banking system in the past decade since the riskier banking systems are willing to increase the supply of credit (i.e.,
engage more in risk-taking activities) in the context of high economic uncertainty. Our results are consistent with the previous finding
by Bordo et al. (2016) regarding the positive association of EPU with bank capital on credit growth. Meanwhile, our findings on the
nexus between EPU with the liquidity, profitability, and risk of banking systems is novel in the literature regarding the effects of EPU
on credit growth.
On the credit demand side, the coefficient estimates of the interaction terms between different measures of EPU in level and real
GDP growth are significantly positive. This means that the negative effect of domestic EPU in level on aggregate bank credit growth is
less prominent in countries with high economic growth rates. In fact, strong economic growth would lead to increased demand for
credit due to higher economic activities, so the negative impact of EPU on credit growth would be reduced under strong credit
demand due to economic growth. This finding is also novel in the literature.
Furthermore, Table 5 reports the results for the relationships between percentage changes in domestic EPU and banking system
characteristics as well as between percentage changes in domestic EPU and real economic growth. The coefficient estimates of these
interaction terms are found to be insignificant, suggesting the negligible effects of domestic EPU in percentage changes on credit
growth in the banking system. This result is robust to different measures of domestic EPU in percentage changes, which also adds new
evidence to the current literature and supports Hu and Gong (2018) that the effects of EPU on aggregate bank credit growth should be
examined at the original level, while the changes in EPU should be used for investigation at the bank level as in Hu and Gong (2018).
8
C.P. Nguyen, et al.
Table 6
Global Economic Policy Uncertainty and Credit channel: PCSE estimations.
Dep.var: CreditG (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26)
Explanatory var: GEPU1 GEPU2 GEPU1m GEPU2m GEPU1vo GEPU2vo GEPU1 GEPU2 GEPU1m GEPU2m GEPU1vo GEPU2vo
Size(-1) −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.002*** −0.002*** −0.002*** −0.002*** −0.001*** −0.001***
[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0005] [0.0005] [0.0007] [0.0007] [0.0004] [0.0004]
Cap(-1) −0.004 −0.004 −0.003 −0.003 −0.005 −0.004 −0.024*** −0.022*** −0.022** −0.022*** −0.007 −0.006
[0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.007] [0.007] [0.009] [0.009] [0.006] [0.005]
Liq(-1) 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.003*** 0.003*** 0.004*** 0.003*** 0.001* 0.001*
[0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.001] [0.001] [0.001] [0.001] [0.0006] [0.0006]
Profit(-1) 0.031*** 0.031*** 0.027*** 0.028*** 0.031*** 0.031*** 0.023 0.020 0.048 0.047 0.033* 0.031*
[0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.025] [0.024] [0.034] [0.032] [0.019] [0.019]
Risk(-1) −0.002* −0.002* −0.0014* −0.0014* −0.002** −0.002** −0.002 −0.002 −0.007** −0.007** −0.003* −0.003**
[0.001] [0.001] [0.0008] [0.0008] [0.001] [0.001] [0.002] [0.002] [0.003] [0.003] [0.0015] [0.002]
GDPg 0.016*** 0.016*** 0.015*** 0.015*** 0.017*** 0.017*** 0.027*** 0.027*** 0.019*** 0.019*** 0.021*** 0.020***
[0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.006] [0.006] [0.007] [0.007] [0.004] [0.004]
GEPU −0.0001 −9.8e-06 −0.0006* −0.0006* 0.0012 0.001 −0.002** −0.002* −0.003*** −0.003*** −0.002 −0.003
[0.0002] [0.0002] [0.0003] [0.0003] [0.0008] [0.001] [0.001] [0.001] [0.001] [0.001] [0.003] [0.003]
9
GEPU*[Size(-1)] 0.00001*** 0.00001*** 0.00002*** 0.00002*** 0.00003 0.00003*
[4.5e-06] [4.4e-06] [5.8e-06] [5.7e-06] [0.00002] [0.000016]
GEPU*[Cap(-1)] 0.0002*** 0.0002*** 0.0002** 0.0002** 0.0001 0.0001
[0.00006] [0.00006] [0.00008] [0.00007] [0.0002] [0.0002]
GEPU*[Liq(-1)] −0.00002*** −0.00002*** −0.00003*** −0.00002*** −0.00002 −0.00002
[6.2e-06] [6.1e-06] [8.1e-06] [7.7e-06] [0.00002] [0.00002]
GEPU*[Profit(-1)] 0.0001 0.0001 −0.0002 −0.0002 −0.0002 −0.00007
[0.0002] [0.0002] [0.0003] [0.0002] [0.0008] [0.0007]
GEPU*[Risk(-1)] 7.2e-06 6.2e-06 0.00005** 0.00005* 0.00007 0.00009
[0.00002] [0.00002] [0.00003] [0.00003] [0.00007] [0.00007]
GEPU*GDPg −0.0001** −0.0001** −0.00003 −0.00003 −0.0002 −0.0001
[0.00005] [0.00005] [0.00006] [0.00006] [0.0002] [0.0002]
Constant 0.117*** 0.112** 0.166*** 0.164*** 0.088** 0.099** 0.294*** 0.282*** 0.428*** 0.429*** 0.149* 0.177**
[0.044] [0.044] [0.049] [0.049] [0.043] [0.042] [0.096] [0.095] [0.125] [0.124] [0.080] [0.078]
Observations 302 302 302 302 302 302 302 302 302 302 302 302
R-squared 0.348 0.348 0.361 0.360 0.356 0.350 0.385 0.384 0.396 0.395 0.372 0.366
Number of count 22 22 22 22 22 22 22 22 22 22 22 22
C.P. Nguyen, et al.
Table 7
Global Economic Policy Uncertainty in percentage changes and Credit channel: Percentage changes: PCSE estimations.
Dep.var: CreditG (27) (28) (29) (30) (31) (32) (33) (34) (35) (36) (37) (38)
Explanatory var: GEPU1c GEPU2c GEPU1mc GEPU2mc GEPU1voc GEPU2voc GEPU1c GEPU2c GEPU1mc GEPU2mc GEPU1voc GEPU2voc
Size(-1) −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001***
[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.005 −0.005*
[0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003]
Liq(-1) 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006** 0.0006**
[0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0002] [0.0002] [0.0003] [0.0003] [0.0003] [0.0003]
Profit(-1) 0.030*** 0.030*** 0.030*** 0.030*** 0.029*** 0.029*** 0.033*** 0.033*** 0.028*** 0.027*** 0.033*** 0.033***
[0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009] [0.009]
Risk(-1) −0.0014* −0.0015* −0.0015* −0.0015* −0.0015* −0.0015* −0.002* −0.002* −0.001 −0.001 −0.0015* −0.0015*
[0.0008] [0.0008] [0.0008] [0.0008] [0.0008] [0.0008] [0.001] [0.001] [0.001] [0.001] [0.0008] [0.0008]
GDPg 0.015*** 0.015*** 0.016*** 0.016*** 0.016*** 0.016*** 0.015*** 0.015*** 0.016*** 0.016*** 0.016*** 0.016***
[0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002]
GEPU 0.054* 0.054* 0.044 0.049 0.017 0.018 0.009 0.009 −0.107 −0.098 0.017 0.007
[0.029] [0.029] [0.043] [0.041] [0.011] [0.012] [0.129] [0.129] [0.187] [0.182] [0.052] [0.054]
10
GEPU*[Size(-1)] 0.0007 0.001 0.001 0.001 0.0002 0.0002
[0.0006] [0.001] [0.001] [0.001] [0.0003] [0.0003]
GEPU*[Cap(-1)] 0.001 0.001 0.003 0.005 −0.002 −0.002
[0.010] [0.010] [0.014] [0.013] [0.004] [0.004]
GEPU*[Liq(-1)] −0.001 −0.001 −0.002 −0.002 0.0001 0.0002
[0.001] [0.001] [0.001] [0.001] [0.0004] [0.0004]
GEPU*[Profit(-1)] 0.120*** 0.120*** 0.103** 0.087* 0.021* 0.021*
[0.035] [0.035] [0.051] [0.048] [0.011] [0.011]
GEPU*[Risk(-1)] −0.007** −0.007** −0.002 −0.002 −0.001 −0.001
[0.003] [0.003] [0.004] [0.004] [0.001] [0.001]
GEPU*GDPg −0.007 −0.007 −0.011 −0.011 −0.002 −0.002
[0.006] [0.006] [0.009] [0.009] [0.003] [0.003]
Constant 0.118*** 0.118*** 0.113*** 0.113*** 0.114*** 0.115*** 0.107*** 0.107*** 0.107*** 0.109*** 0.116*** 0.114***
[0.039] [0.039] [0.040] [0.040] [0.039] [0.039] [0.040] [0.040] [0.039] [0.039] [0.040] [0.040]
Observations 302 302 302 302 302 302 302 302 302 302 302 302
R-squared 0.361 0.361 0.352 0.354 0.356 0.356 0.411 0.411 0.370 0.369 0.366 0.367
Number of count 22 22 22 22 22 22 22 22 22 22 22 22
Table 8
Domestic Economic Policy Uncertainty and Credit channels in two subsamples.
Part A: 12 Advanced economies
Dep.var: CreditG (1) (2) (3) (4) (5) (6) (7) (8)
Size(-1) −0.0008*** −0.0008*** −0.0007*** −0.0007*** −0.0009*** −0.0008*** −0.0008*** −0.0008***
[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.0023 −0.0048 −0.0034 −0.0037 −0.0073 −0.0029 −0.0031 −0.0029
[0.0048] [0.0049] [0.0051] [0.0050] [0.0050] [0.0045] [0.0046] [0.0045]
Liq(-1) 0.0003 0.0002 0.0004 0.0004 −0.0001 0.0003 0.0003 0.0003
[0.0004] [0.0004] [0.0004] [0.0004] [0.0004] [0.0004] [0.0004] [0.0004]
Profit(-1) 0.0754*** 0.0649*** 0.0599*** 0.0603*** 0.0721*** 0.0653*** 0.0647*** 0.0645***
[0.0209] [0.0204] [0.0203] [0.0195] [0.0193] [0.0191] [0.0193] [0.0194]
Risk(-1) −0.0018 −0.0017 −0.0017 −0.0016 −0.0022* −0.0025* −0.0025* −0.0025*
[0.0014] [0.0014] [0.0013] [0.0013] [0.0013] [0.0013] [0.0013] [0.0013]
GDPg 0.0079* 0.0077 0.0077 0.0086* 0.0079* 0.0083* 0.0079*
[0.0047] [0.0049] [0.0049] [0.0044] [0.0046] [0.0046] [0.0046]
EPU −0.0002 −0.0002 0.0014** 0.0152 0.0339 0.0211
[0.0002] [0.0002] [0.0005] [0.0270] [0.0460] [0.0198]
Constant 0.1447** 0.1540** 0.1553** 0.1556** 0.1569*** 0.1508*** 0.1542*** 0.1547***
[0.0615] [0.0605] [0.0642] [0.0651] [0.0593] [0.0567] [0.0578] [0.0576]
N 168 168 166 166 166 164 164 164
R-squared 0.2161 0.2434 0.2523 0.2471 0.2879 0.2608 0.2646 0.2703
Countries 12 12 12 12 12 12 12 12
Part B: 10 Emerging Economies
Dep.var: CreditG (1) (2) (3) (4) (5) (6) (7) (8)
Size(-1) −0.0005 −0.0003 −0.0001 0.0000 −0.0002 −0.0004 −0.0003 −0.0003
[0.0004] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003] [0.0003]
Cap(-1) −0.0065 −0.0030 −0.0020 −0.0008 −0.0020 −0.0031 −0.0032 −0.0030
[0.0055] [0.0042] [0.0041] [0.0041] [0.0043] [0.0042] [0.0041] [0.0041]
Liq(-1) 0.0003 0.0019** 0.0019** 0.0019** 0.0019** 0.0018** 0.0019** 0.0019**
[0.0007] [0.0008] [0.0008] [0.0007] [0.0008] [0.0008] [0.0008] [0.0008]
Profit(-1) 0.0422*** 0.0275** 0.0281** 0.0248** 0.0273** 0.0244** 0.0270** 0.0264**
[0.0110] [0.0120] [0.0118] [0.0113] [0.0119] [0.0122] [0.0122] [0.0122]
Risk(-1) −0.0003 −0.0043** −0.0043*** −0.0038** −0.0041** −0.0041** −0.0043** −0.0043**
[0.0017] [0.0017] [0.0016] [0.0016] [0.0017] [0.0017] [0.0017] [0.0017]
GDPg 0.0224*** 0.0220*** 0.0211*** 0.0221*** 0.0221*** 0.0225*** 0.0226***
[0.0032] [0.0031] [0.0029] [0.0031] [0.0032] [0.0032] [0.0032]
EPU −0.0002 −0.0006*** −0.0004 0.0339* 0.0160 0.0168
[0.0001] [0.0002] [0.0004] [0.0178] [0.0288] [0.0171]
Constant 0.1726** 0.0438 0.0454 0.0742 0.0462 0.0558 0.0476 0.0469
[0.0679] [0.0460] [0.0470] [0.0490] [0.0471] [0.0472] [0.0464] [0.0459]
N 134 134 133 133 133 132 132 132
R-squared 0.1673 0.4146 0.4179 0.4374 0.4171 0.4275 0.4147 0.4168
Countries 10 10 10 10 10 10 10 10
4.2. Global EPU and credit growth
The influences of global EPU in level on credit growth are reported in Table 6.
All the results regarding banking system characteristics and real GDP growth are consistent with the previous findings in this
study that real GDP growth, the bank liquidity and bank profitability have positive effects on aggregate bank credit growth, while
these impacts for the bank size, bank capital, and bank risk are negative. Since we find that the levels of global EPU have significantly
negative effects on credit growth in the banking system, this means that the increases in both domestic and global EPUs have
unfavorable effects on aggregate bank credit growth. This study is probably the first attempt in the literature that reveals the effects of
both domestic and global EPUs on credit growth for a global sample. Our finding is consistent with theory since higher level of global
EPU would bring a negative shock to the domestic output (e.g., see Colombo (2013); Carrière-Swallow and Céspedes (2013)), which
then reduce the aggregate bank credit growth.
On the credit supply side, the interaction terms between levels of global EPU and the size, the capital, and the risk of banking
systems are positive, while the associations of global EPU with the bank liquidity and the profitability are negative. These results are
consistent with the effects of domestic EPU in level on credit growth through credit supply channel. However, the interaction term
between global EPU in level and real GDP growth is negative. This is opposite to the previous results on the effects of domestic EPU in
level on credit growth through the supply side. This means that the negative impact of high levels of global EPU on credit growth
through the credit demand side is stronger in the context of high economic growth. The result emphasized the stronger effects of
global EPU, in comparison with domestic EPU, on credit growth through credit demand channel. This interesting finding documents
11
C.P. Nguyen, et al.
Table 9
Domestic Economic Policy Uncertainty and Credit channels in two subsamples: Percentage changes.
Group 12 Advanced economies 10 Emerging Economies
Dep.var: CreditG (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Explanatory var: EPU EPUm EPUvo EPUc EPUmc EPUvoc EPU EPUm EPUvo EPUc EPUmc EPUvoc
Size(-1) −0.0016*** −0.0023*** −0.0021*** −0.0008*** −0.0008*** −0.0008*** −0.0003 0.0004 −0.0008 −0.0004 −0.0003 −0.0003
[0.0005] [0.0007] [0.0005] [0.0002] [0.0002] [0.0002] [0.0007] [0.0008] [0.0006] [0.0003] [0.0003] [0.0003]
Cap(-1) −0.0086 −0.0120 −0.0027 −0.0026 −0.0025 −0.0028 −0.0203* −0.0345*** −0.0316*** −0.0037 −0.0031 −0.0031
[0.0100] [0.0127] [0.0083] [0.0044] [0.0044] [0.0046] [0.0121] [0.0117] [0.0109] [0.0040] [0.0043] [0.0044]
Liq(-1) 0.0024*** 0.0033*** 0.0014 0.0002 0.0003 0.0002 0.0035* 0.0057** 0.0023 0.0018** 0.0019** 0.0019**
[0.0009] [0.0011] [0.0009] [0.0004] [0.0004] [0.0004] [0.0018] [0.0025] [0.0019] [0.0008] [0.0008] [0.0008]
Profit(-1) −0.0566 −0.0517 0.0403 0.0640*** 0.0636*** 0.0636*** 0.0444 0.0764* 0.0931*** 0.0235* 0.0265** 0.0274**
[0.0429] [0.0425] [0.0319] [0.0194] [0.0185] [0.0201] [0.0354] [0.0454] [0.0346] [0.0122] [0.0132] [0.0128]
Risk(-1) 0.0052 0.0020 −0.0060** −0.0027** −0.0027* −0.0028** −0.0093** −0.0153*** −0.0061* −0.0039** −0.0043** −0.0044**
[0.0041] [0.0048] [0.0030] [0.0013] [0.0014] [0.0014] [0.0037] [0.0043] [0.0034] [0.0017] [0.0018] [0.0017]
GDPg 0.0119 0.0090 0.0064 0.0088* 0.0081* 0.0075 0.0121* 0.0048 −0.0026 0.0224*** 0.0226*** 0.0224***
[0.0102] [0.0116] [0.0063] [0.0048] [0.0044] [0.0047] [0.0067] [0.0091] [0.0069] [0.0032] [0.0034] [0.0033]
EPU 1.5e-06 −0.0011 −0.0037 0.2553* 0.3537* 0.0026 −0.0022** −0.0041*** −0.0100*** 0.0983 0.1813 −0.0427
12
[0.0011] [0.0013] [0.0032] [0.1504] [0.1882] [0.0858] [0.0011] [0.0014] [0.0033] [0.1107] [0.1529] [0.0974]
EPU*[Size(-1)] 5.2e-06 0.00001** 0.00004*** −0.0005 −0.0006 0.0002 3.2e-06 −1.4e-06 0.00002 4.2e-06 −0.0008 0.0003
[4.1e-06] [5.2e-06] [0.00001] [0.0007] [0.0009] [0.0004] [5.4e-06] [6.9e-06] [0.00001] [0.0007] [0.0010] [0.0006]
EPU*[Cap(-1)] 5.5e-06 0.00004 −0.0002 −0.0037 0.0028 0.0030 0.0002 0.0004*** 0.0008*** −0.0117 −0.0134 0.0085
[0.0001] [0.0001] [0.0002] [0.0085] [0.0144] [0.0063] [0.0001] [0.0001] [0.0003] [0.0098] [0.0136] [0.0093]
EPU*[Liq(-1)] −0.00002** −0.00002*** −0.00004* −0.0024** −0.0036*** −0.0003 −0.00001 −0.00003* −6.3e-06 0.0020 0.0005 −0.0013
[6.5e-06] [8.4e-06] [0.00002] [0.0010] [0.0013] [0.0006] [0.00001] [0.00002] [0.00004] [0.0014] [0.0030] [0.0017]
EPU*[Profit(-1)] 0.0010*** 0.0009** 0.0007 0.0552 0.1183* −0.0090 −0.0001 −0.0005 −0.0015** 0.0207 0.0009 −0.0030
[0.0004] [0.0004] [0.0010] [0.0394] [0.0653] [0.0283] [0.0002] [0.0003] [0.0007] [0.0264] [0.0478] [0.0233]
EPU*[Risk(-1)] −0.00005 −0.00002 0.0002** −0.0067 −0.0116* −0.0005 0.00004 0.0001*** 0.00002 −0.0044 −0.0015 −0.0007
[0.00004] [0.00004] [0.0001] [0.0053] [0.0066] [0.0026] [0.00003] [0.00002] [0.0001] [0.0030] [0.0055] [0.0031]
EPU*GDPg −0.00003 −5.2e-06 0.0001 −0.0016 −0.0145 −0.0014 0.0001 0.00013* 0.0007*** 0.0027 0.0041 0.0023
[0.0001] [0.0001] [0.0002] [0.0086] [0.0136] [0.0060] [0.0001] [0.00007] [0.0002] [0.0058] [0.0127] [0.0065]
Cons. 0.1728 0.2901* 0.3027*** 0.1550*** 0.1544*** 0.1630*** 0.2570** 0.3898*** 0.3926*** 0.0598 0.0459 0.0474
[0.1326] [0.1530] [0.1142] [0.0561] [0.0570] [0.0585] [0.1232] [0.1451] [0.1299] [0.0438] [0.0472] [0.0476]
N 166 166 166 164 164 164 133 133 133 132 132 132
R-squared 0.3393 0.3418 0.3554 0.2849 0.3059 0.2770 0.4501 0.5173 0.5133 0.4406 0.4187 0.4215
Countries 12 12 12 12 12 12 10 10 10 10 10 10
different effects of domestic and global EPUs in level on credit growth through the credit demand side.
Table 7 presents the influences of changes in global EPU on credit growth. The results show that higher percentage changes of
global EPU have positive but insignificant effects on credit growth. Interestingly, these positive impacts are more significant in highly
profitable banking systems and weaker in riskier ones. This means that higher profitable banking system would induce higher supply
of credit in facing the positive changes in global EPU, while riskier banking systems would reduce their credit supply more in this
situation. Meanwhile, the positive effects of percentage changes in global EPU are stronger but insignificant in banking systems with
larger size and/or better-capital. At last, the positive effects of changes in global EPU are less prominent in economies with strong
economic growth, but still statistically insignificant.
To summarize, aggregate bank credit growth is reduced in a high-uncertainty situation of the global economy. However, the
increase in the global EPU would lead to higher credit growth in the banking system during the investigation period of this study. On
the credit supply side, the negative impacts of global EPU on credit growth are less prominent in large and/or well-capitalized and/or
risker banking systems. Meanwhile, the positive effects of changes in global EPU are stronger in highly profitable banking systems
and weaker in riskier ones. On the credit demand side, the influences of global EPU on credit growth in the context of strong
economic growth are less significant.
4.3. Two subsamples: 12 advanced economies vs ten emerging economies
For comparison and completeness, we split the whole study sample into two sub-samples including 12 advanced economies and
ten emerging economies and perform the similar analysis to examine the impacts of EPU on credit growth in these two subsamples.
The division of the whole sample into two sub-samples is justified by the expectation that there could be substantial differences
between advanced and emerging economies in the stages of financial market development in addition to the market structures and
regulations. As such, risk-taking behaviours in the banking system under changes in uncertainty conditions might be different. The
results of estimations for Eq. [2] are reported in Table 8.
Table 8 shows that the impacts of EPU (EPU) on credit growth in advanced economies appear to be statistically insignificant (see
Part A – Table 8), while the influences of EPU on credit growth in emerging economies seem to be statistically significant (see Part B –
Table 8). This implies that the effects of EPU are stronger in emerging economies. Specifically, the higher levels of EPU have negative
impact on credit growth for both subsamples, but the effect is only found significant for the subsample of emerging countries.
Meanwhile, increased volatility of EPU has significantly positive effects on credit growth in advanced economies while having
negative but insignificant impacts in emerging economies. On the other hand, increases in percentage changes in EPU have positive
but insignificant impacts on credit growth in both advanced and emerging economies.
Next, the transmission of EPU to credit growth through credit supply and credit demand channels is examined by estimating Eq.
[3] for the two sub-samples. The results are reported in Table 9.
In the subsample of advanced economies, the higher level of EPU and its volatility has insignificant negative impact on credit
growth, but this effect is weaker in the banking systems with larger size, higher liquidity, higher profitability. While, the increase in
percentage changes of EPU has significantly positive impact on credit growth in advanced economies, but this effect is weaker in high
liquid banks. That is, the liquid or large banking system in advanced economies are likely to take less risky activities under the
condition of high uncertainty.
In the subsample of emerging economies, the higher levels of EPU and its volatility have significantly negative impacts on credit
growth, and this effect is likely stronger in the banking systems with higher liquidity, higher profitability but weaker in the banking
systems with higher risk and during the period of stronger economic growth. This means that the banking systems in emerging
economies are likely to take riskier activities than in the case of advanced economies. On the contrary, we found no significant effects
of increases in percentage changes of EPU on the credit growth in this subsample.
5. Concluding remarks
This research brings new evidence to a growing body of literature on economic policy uncertainty and its macroeconomic in-
fluences (Bordo et al., 2016). Several studies suggest that it is important to understand whether the effects of EPU on credit channels
are through the credit demand side or credit supply side (Hu and Gong, 2018). However, this issue seems to be ignored in the existing
literature. To fill this gap, this study examines the influences of EPU at domestic and global levels, on credit channels by looking at
both the credit demand and supply sides. To this end, this study applies PCSE and FGLS on baseline models that are built based on
extensions of the works by Bordo et al. (2016) and Hu and Gong (2018).
Specifically, we investigate the impacts of different measures of domestic and global EPUs in levels and percentage changes on
credit growth in 22 banking systems over the period spanning from 2001 to 2015. In our models, the associations between EPU and
real economic growth as well as those between EPU and banking system characteristics including the size, the capital, the liquidity,
the profitability, and the risk are explicitly examined to explore the potential influences of EPU on credit growth through credit
demand and supply sides. The Panel Corrected Standard Errors (PCSE) are employed as our main estimation technique as it suits for
unbalanced panel data models as in the case of this study. FGLS models are also utilised as our robustness checks. Our principal
findings are follows.
First, the high levels of EPU, especially domestic EPU, in terms of year-end, yearly mean and yearly volatility, appear to have
significantly negative effects on credit growth in banking systems during our investigation period. On the credit supply side, this
unfavorable impact of domestic EPU is stronger in highly liquid and/or profitable banking systems, while weaker in large and/or well
13
capitalized and/or riskier banking systems. On the credit demand side, the negative effect of domestic EPU is less prominent in the
context of strong economic growth, while the negative effect of global EPU is more pronounced in the case of high economic growth.
Second, the higher percentage changes in domestic and global EPU seem to have positive impacts on aggregate bank credit
growth. On the credit supply side, the positive effects of changes in domestic EPU are less prominent in well capitalized and/or highly
liquid and/or riskier banking systems, while the positive effects of changes in global EPU are stronger in large and/or well capitalized
and/or highly profitable banking systems but weaker in highly liquid and/or riskier ones. On the credit demand side, the influences of
changes in domestic and global EPU are less pronounced in the context of strong economic growth.
Third, the impacts of EPU in emerging economies are found to be negative and somewhat stronger than those in advanced
economies. This result implies that the banking systems in emerging countries are more vulnerable to uncertainty changes.
The findings of this study necessitate the call for suitable measures undertaken by policymakers with regard to the risk-taking
activities in banking systems under uncertainty conditions. In particular, policymakers should pay special attention to the credit risk-
taking activities in large and/or well capitalized and or highly profitable banking system.
Appendix A
Table A3 Table A4 Table A5
Table A1
Country list (22).
Australia France Ireland Netherlands United Kingdom
Brazil Germany Italy Russian Federation United States

Chile Greece Japan Singapore
China Hong Kong SAR, China Korea, Rep. Spain
Colombia India Mexico Sweden
12 Advanced economies
Australia Hong Kong SAR, China Netherlands Sweden
France Italy Singapore United Kingdom
Germany Japan Spain United States
10 Emerging Economies
Brazil Colombia Ireland Mexico
Chile Greece Korea, Rep. Russian Federation
China India
Note: IMF (http://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf); Advanced and Secondary Emerging Markets listed at: "FTSE Annual
Country Classification Review" (PDF). FTSE Group; J.P. Morgan (April 1, 2016). "Emerging Markets Bond Index Monitor March 2016". J.P. Morgan.
Retrieved April 1, 2016.
Table A2
Domestic Economic Policy Uncertainty (EPU) and Credit channel (FGLS estimations).
Dep.var: CreditG (1) (2) (3) (4) (5) (6) (7) (8)
Size(-1) −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001***
[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.003 −0.004 −0.003 −0.003 −0.004 −0.003 −0.003 −0.003
[0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003]
Liq(-1) 0.00007 0.0006* 0.0007* 0.0008** 0.0005 0.0007* 0.0007* 0.0007*
[0.0004] [0.0004] [0.0004] [0.0004] [0.0004] [0.0004] [0.0004] [0.0004]
Profit(-1) 0.046*** 0.031*** 0.030*** 0.027*** 0.032*** 0.029*** 0.030*** 0.030***
[0.008] [0.008] [0.008] [0.008] [0.008] [0.008] [0.008] [0.008]
Risk(-1) −0.001 −0.0015 −0.002* −0.0015 −0.0015 −0.0017* −0.0018* −0.0018*
[0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001]
GDPg 0.016*** 0.016*** 0.016*** 0.016*** 0.016*** 0.017*** 0.016***
[0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002]
EPU −0.0002* −0.0004** 0.0004 0.028** 0.027 0.018
[0.0001] [0.0002] [0.0003] [0.014] [0.023] [0.011]
Constant 0.162*** 0.111*** 0.122*** 0.136*** 0.102*** 0.105*** 0.104*** 0.104***
[0.039] [0.036] [0.038] [0.038] [0.037] [0.037] [0.037] [0.037]
N 302 302 299 299 299 296 296 296
Countries 22 22 22 22 22 22 22 22
14
Table A3
Domestic Economic Policy Uncertainty (EPU) and Credit channel: Supply side vs Demand side (FGLS estimations).
Dep.var: CreditG (9) (10) (11) (12) (13) (14)
Explanatory var: EPU EPUm EPUvo EPUc EPUmc EPUvoc
Size(-1) −0.001*** −0.002*** −0.002*** −0.001*** −0.001*** −0.001***

[0.0004] [0.0005] [0.0004] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.014** −0.020** −0.014** −0.003 −0.003 −0.004
[0.006] [0.008] [0.006] [0.003] [0.003] [0.003]
Liq(-1) 0.002** 0.003** 0.001 0.0007* 0.0007* 0.0007*
[0.001] [0.001] [0.001] [0.0004] [0.0004] [0.0004]
Profit(-1) 0.027 0.037 0.059*** 0.028*** 0.029*** 0.030***
[0.021] [0.029] [0.019] [0.008] [0.008] [0.008]
Risk(-1) −0.002 −0.007*** −0.003 −0.002 −0.002* −0.002*
[0.002] [0.003] [0.002] [0.001] [0.001] [0.001]
GDPg 0.008 0.006 0.002 0.016*** 0.017*** 0.017***
[0.005] [0.006] [0.004] [0.002] [0.002] [0.002]
EPU −0.0014** −0.003*** −0.005*** 0.089 0.109 −0.026
[0.0006] [0.001] [0.002] [0.089] [0.136] [0.068]
EPU*[Size(-1)] 4.5e-06* 0.00001** 0.00002*** −0.0001 0.00006 0.0003
[2.6e-06] [3.6e-06] [8.0e-06] [0.0004] [0.001] [0.0003]
EPU*[Cap(-1)] 0.0001* 0.0002** 0.0003* −0.003 −0.005 0.004
[0.00005] [0.00007] [0.00015] [0.007] [0.010] [0.005]
EPU*[Liq(-1)] −6.8e-06 −0.00001 −9.1e-06 −0.0002 −0.001 −0.0003
[5.9e-06] [8.4e-06] [0.00001] [0.0008] [0.001] [0.001]
EPU*[Profit(-1)] −3.9e-06 −0.00001 −0.0007* 0.018 0.029 −0.005
[0.0001] [0.00002] [0.0004] [0.017] [0.029] [0.014]
EPU*[Risk(-1)] 4.6e-06 0.00005** 0.00004 −0.003 −0.002 −0.001
[0.00002] [0.00002] [0.00005] [0.002] [0.003] [0.002]
EPU*GDPg 0.00007* 0.0001 0.0004*** −0.0001 −0.005 0.002
[0.00004] [0.00006] [0.0001] [0.004] [0.008] [0.004]
Constant 0.272*** 0.426*** 0.308*** 0.100*** 0.099*** 0.110***
[0.084] [0.113] [0.078] [0.038] [0.038] [0.038]
N 299 299 299 296 296 296
Countries 22 22 22 22 22 22
15
C.P. Nguyen, et al.
Table A4
Global Economic Policy Uncertainty (EPU) and Credit channel (FGLS estimations).
Dep.var: CreditG (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26)
Explanatory var: GEPU1 GEPU2 GEPU1m GEPU2m GEPU1vo GEPU2vo GEPU1 GEPU2 GEPU1m GEPU2m GEPU1vo GEPU2vo
Size(-1) −0.0006*** −0.0006*** −0.0006*** −0.0006*** −0.0006*** −0.0006*** −0.002*** −0.002*** −0.002*** −0.002*** −0.001*** −0.001***
[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0005] [0.0005] [0.0007] [0.0007] [0.0004] [0.0004]
Cap(-1) −0.004 −0.004 −0.003 −0.003 −0.005 −0.004 −0.024*** −0.022*** −0.022** −0.022** −0.007 −0.006
[0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.008] [0.008] [0.010] [0.010] [0.006] [0.006]
Liq(-1) 0.0005 0.0005 0.0005 0.0006 0.0006* 0.0006* 0.003*** 0.003*** 0.004** 0.003** 0.001 0.001
[0.0004] [0.0004] [0.0004] [0.0004] [0.0003] [0.0004] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001]
Profit(-1) 0.031*** 0.031*** 0.027*** 0.028*** 0.031*** 0.031*** 0.023 0.020 0.048 0.047 0.033* 0.031*
[0.008] [0.008] [0.008] [0.008] [0.008] [0.008] [0.025] [0.024] [0.033] [0.031] [0.017] [0.017]
Risk(-1) −0.0015 −0.0015 −0.001 −0.001 −0.002 −0.002 −0.002 −0.002 −0.007* −0.007* −0.003 −0.003
[0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.003] [0.003] [0.004] [0.004] [0.002] [0.002]
GDPg 0.016*** 0.016*** 0.015*** 0.015*** 0.017*** 0.017*** 0.027*** 0.027*** 0.019** 0.019** 0.021*** 0.020***
[0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.006] [0.006] [0.009] [0.009] [0.005] [0.005]
GEPU −0.00007 −9.8e-06 −0.0006** −0.0006** −0.001** 0.0006 −0.002* −0.002* −0.003** −0.003** −0.002 −0.003
16
[0.0002] [0.0002] [0.0003] [0.0002] [0.0006] [0.0006] [0.001] [0.001] [0.001] [0.001] [0.003] [0.003]
GEPU*[Size(-1)] 0.00001*** 0.00001*** 0.00002*** 0.00002*** 0.00003* 0.00003*
[4.5e-06] [4.3e-06] [6.2e-06] [6.0e-06] [0.00002] [0.000015]
GEPU*[Cap(-1)] 0.0002** 0.0002** 0.0002* 0.0002* 0.0001 0.0001
[0.00007] [0.00007] [0.0001] [0.0001] [0.0002] [0.0002]
GEPU*[Liq(-1)] −0.00002** −0.00002** −0.00003** −0.00002** −0.00002 −0.00002
[9.1e-06] [8.8e-06] [0.00001] [0.00001] [0.00003] [0.00003]
GEPU*[Profit(-1)] 0.00007 0.00009 −0.0002 −0.0002 −0.0002 −0.00007
[0.0002] [0.0002] [0.0003] [0.0002] [0.0007] [0.0017]
GEPU*[Risk(-1)] 7.2e-06 6.2e-06 0.00005 0.00005 0.00007 0.00009
[0.00003] [0.00003] [0.00004] [0.00003] [0.00009] [0.00009]
GEPU*GDPg −0.0001* −0.0001* −0.00003 −0.00003 −0.0002 −0.0001
[0.00006] [0.00005] [0.00008] [0.00008] [0.0002] [0.0002]
Constant 0.117*** 0.112*** 0.166*** 0.164*** 0.088** 0.099*** 0.294*** 0.282*** 0.428*** 0.429*** 0.149** 0.177**
[0.039] [0.039] [0.042] [0.042] [0.038] [0.038] [0.106] [0.103] [0.141] [0.140] [0.075] [0.074]
Observations 302 302 302 302 302 302 302 302 302 302 302 302
Number of count 22 22 22 22 22 22 22 22 22 22 22 22
C.P. Nguyen, et al.
Table A5
Global Economic Policy Uncertainty (EPU) in percentage changes and Credit channel (FGLS estimations).
Dep.var: CreditG (27) (28) (29) (30) (31) (32) (33) (34) (35) (36) (37) (38)
Explanatory var: GEPU1c GEPU2c GEPU1mc GEPU2mc GEPU1voc GEPU2voc GEPU1c GEPU2c GEPU1mc GEPU2mc GEPU1voc GEPU2voc
Size(-1) −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001***
[0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002] [0.0002]
Cap(-1) −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.004 −0.005* −0.005*
[0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003] [0.003]
Liq(-1) 0.0006 0.0006 0.0006* 0.0006* 0.0006* 0.0006* 0.0005 0.0005 0.0005 0.0006* 0.0006* 0.0006*
[0.0004] [0.0004] [0.00036] [0.00036] [0.00036] [0.00036] [0.0003] [0.0003] [0.0004] [0.0003] [0.0003] [0.0003]
Profit(-1) 0.030*** 0.030*** 0.030*** 0.030*** 0.029*** 0.029*** 0.033*** 0.033*** 0.028*** 0.027*** 0.033*** 0.033***
[0.007] [0.007] [0.008] [0.008] [0.008] [0.008] [0.007] [0.007] [0.008] [0.008] [0.008] [0.008]
Risk(-1) −0.001 −0.001 −0.002 −0.002 −0.002 −0.002 −0.002 −0.002 −0.001 −0.001 −0.001 −0.001
[0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001] [0.001]
GDPg 0.015*** 0.015*** 0.016*** 0.016*** 0.016*** 0.016*** 0.015*** 0.015*** 0.016*** 0.016*** 0.016*** 0.016***
[0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002] [0.002]
GEPU 0.054** 0.054** 0.044 0.049* 0.017** 0.018** 0.009 0.009 −0.107 −0.098 0.017 0.007
17
[0.021] [0.021] [0.030] [0.029] [0.009] [0.009] [0.113] [0.113] [0.175] [0.170] [0.047] [0.050]
GEPU*[Size(-1)] 0.001 0.001 0.001* 0.001 0.0002 0.0002
[0.001] [0.001] [0.001] [0.001] [0.0002] [0.0002]
GEPU*[Cap(-1)] 0.001 0.001 0.003 0.005 −0.002 −0.002
[0.009] [0.009] [0.013] [0.013] [0.004] [0.004]
GEPU*[Liq(-1)] −0.001 −0.001 −0.002 −0.002 0.0001 0.0002
[0.001] [0.001] [0.002] [0.002] [0.0005] [0.0005]
GEPU*[Profit(-1)] 0.120*** 0.120*** 0.103** 0.087** 0.021** 0.021**
[0.027] [0.027] [0.042] [0.039] [0.010] [0.010]
GEPU*[Risk(-1)] −0.007** −0.007** −0.002 −0.002 −0.001 −0.001
[0.003] [0.003] [0.004] [0.004] [0.001] [0.001]
GEPU*GDPg −0.007 −0.007 −0.011 −0.011 −0.002 −0.002
[0.006] [0.006] [0.010] [0.010] [0.003] [0.003]
Constant 0.118*** 0.118*** 0.113*** 0.113*** 0.114*** 0.115*** 0.107*** 0.107*** 0.107*** 0.109*** 0.116*** 0.114***
[0.036] [0.036] [0.036] [0.036] [0.036] [0.036] [0.035] [0.035] [0.036] [0.036] [0.036] [0.036]
Observations 302 302 302 302 302 302 302 302 302 302 302 302
Number of count 22 22 22 22 22 22 22 22 22 22 22 22
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Contents lists available at ScienceDirect

Research in International Business and Finance

Economic policy uncertainty and credit growth: Evidence from a

ARTICLE INFO ABSTRACT

2. Literature review on the credit channels

3. Methodology and data

Eq. [2] as follows:

Data, definitions, and calculations of the variables are presented in Table 1.

Size −0.284 EPU −0.194 GEPU1 −0.167 GEPU1c 0.205

4. Results and discussion

Size 30.529 0.000 0.52 0.68 4.9035 24.0736

Size(-1) −0.001* −0.001* −0.001* −0.001* −0.001* −0.001* −0.001* −0.001*

Size(-1) −0.001* −0.002* −0.002* −0.001* −0.001* −0.001*

4.1. Domestic EPU and credit growth

4.2. Global EPU and credit growth

4.3. Two subsamples: 12 advanced economies vs ten emerging economies

Table A3 Table A4 Table A5

Brazil Germany Italy Russian Federation United States

Size(-1) −0.001* −0.002* −0.002* −0.001* −0.001* −0.001*

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